What is college planning with life insurance?
College planning with life insurance is a self-completing plan. The primary purpose for life insurance is to provide a death benefit to beneficiaries. This benefit protection can make life insurance an attractive choice to help fund a college education in case of a premature death.
Life insurance also can provide a tax-deferred growth vehicle that can accumulate cash values inside the policy. These cash values can be withdrawn to help fund college.
While many people are aware that cost of a college education has been on the rise, many underestimate just how large this cost has grown.
Over the past decade, the published in-state tuition and fees for four-year public colleges and universities grew at an average rate of 2.9% per year beyond the rate of inflation.
At the same time, many families lack life insurance protection, which many consider to be the cornerstone of financial protection.
Recent studies have shown that four in ten U.S. households have no life insurance at all. This leaves them vulnerable should the primary breadwinner die unexpectedly.
Many people do not realize that with the right life insurance policy, you can secure needed death benefit and gain a way to help pay for college.
Why college planning with life insurance?
Your personal savings should be the primary source for college funding. However, that comes with a challenge if the family’s primary breadwinner dies prematurely.
If that occurs typically the personal savings plan comes to an abrupt end. In this situation, a life insurance policy can help. The policy’s death benefit could be used to help pay college tuition cost.
How does the cash value of life insurance help with college?
Most all permanent life insurance plans like whole life or universal life the policy will earn interest and accumulate cash values. These accumulated cash values will grow on a tax-deferred basis.
At some time in the future these cash values can be accessed thru withdrawals or policy loans.
Loan options using the cash value of a life insurance policy as collateral can sometimes be an quick an easy way to provide money for college tuition.
The loan option does not require any paperwork to be completed by the parent or the student. No need to show financial justification. There is no applying and hoping to get approved. It is as simple as calling up the insurer and requesting the amount you need.
In addition, the loans are usually at very favorable terms. Also, if loans are not paid back to the insurance company no one comes looking for you. The loan amount and interest are just deducted from the death benefit payout.
Important: It is important to remember to always keep the life insurance policy in force if you have no plans to pay the loans back. By letting the policy lapse there could be a taxable event. Always check with a tax adviser if you’re unsure.
There are many good books available that illustrate how you can use a permanent life insurance policy to fund college, retirement, trips, etc. I recommend “Becoming Your Own Banker” by Nelson Nash.
Who needs college planning with life insurance?
- Are you in need of life insurance protection to help ensure your family is financially protected?
- Do you have a child or children up to 13 years old?
- Are you concerned about college tuition costs?
- Are you possibly looking to help supplement income in your retirement years?
How does college planning with life insurance work?
Dave and Dianne are a young couple with two small children. Dave is 28 and Dianne is 26. Dave is the primary breadwinner. The children’s age are 4 and 2.
Dave has a mortgage and two young kids. He knows he needs to protect his family while also planning for the future.
After exploring his options and a thorough needs based discussion with his life insurance representative, Dave concludes that life insurance will satisfy is needs. Dave decides to purchase a coverage amount of $750,000.
Dave uses a combination of term life insurance protection and universal life protection to fit his budget. This protects his family in case of his unexpected death. This also build cash value for future college tuition cost or possible supplemental retirement.
Being that Dave’s youngest child is two years of age he decides to split the coverage between $500,000 20 year level term and $250,000 universal life.
This combination of protection will guarantee life insurance protection until his youngest child is out of college. In addition, he has 16 years to fund the universal life policy to help pay for college tuition.
What if the kids gain scholarships or decide not to go to college? Dave now has an excellent start on a terrific supplemental retirement plan.
Dave will continue to fund the universal life insurance plan to age 65. Now, Dave will have substantial tax-deferred dollars accumulated.
After reaching age 65 and with his life insurance needs probably diminished, Dave can now access his cash values by using the very friendly loan option.
This option allows Dave the ability to access his cash value on a tax-free basis. Any remaining death benefits paid out after Dave’s passing will also be paid out on a tax-free basis.
Summary of college planning with life insurance
As you can see college life insurance planning is not only a great way to protect you against the unexpected, but also a terrific way to plan for college tuition costs and supplemental retirement needs.
If you meet any of the criteria for college life insurance planning and would like to see how your plan would work, simply contact us at 1-888-393-9003 or mike@specialriskterm.com
